Putting The 'Rational' In Rationalization

'Rational' (adjective): Based on or in accordance with reason or logic.

The
PRS partners
have been working around the public service long enough to see centralization/decentralization of services, the creation of and subsequent disillusionment with 'mega' solutions e.g. UCS, and of course a round or two of program review and budget reduction.

This last topic is on the minds of GOC managers right now. Some years ago I lead a large budget reduction/rationalization exercise for an organization with a budget of $700 million, wherein my team identified about $110 million in savings. So I thought I would share a few thoughts about how to do rationalization right (IMHO ;-)

1. Document outputs

Mapping outputs, which usually cross functional boundaries, means examining the service from the customer point of view and identifying the tasks that deliver that output. Ownership of the task is then established.

The key here is to aggregate outputs sensibly, i.e. assemble sub-components into larger, more comprehensive units that result in a product delivered to the end client/customer.

2. Identify costs

Output costs need to be developed ‘from the bottom up’; that is, each activity that results in a customer output needs to be costed in order to determine the true cost of delivery.

The rationale for this approach is that costing outputs from a customers perspective is more relevant than costing activities that may not be as easily linked to the value they provide.

Costing from an output perspective provides a cost baseline that can be compared to other (internal and external) service provision approaches. And, this approach establishes the benchmark from which to measure improvements.

Finally, costing in this way also allows the management team to make an evaluation of avoidable and non-avoidable costs for each output. Avoidable costs are the costs that will ‘go away’ when a targeted service ceases.

3. Identify savings opportunities

The challenge here is to find ways to improve efficiency without adversely affecting customer service levels. Common themes include:

Reduce the ‘footprint’, by eliminating the use of resources which do not directly support a customer;

Establishing service level agreements with customers and devolving budgets to lowest possible level;